Volatility of cryptocurrencies, lucrative roller coasters

This year we can see that cryptocurrencies tend to move up and down even by 15% of the value daily. Such price changes are known as volatility. But what if … this is perfectly normal, and sudden changes are one of the characteristics of a cryptocurrency that allows you to make a good profit?

First of all, cryptocurrencies have recently hit the mainstream, so all the news about them and rumors are “hot”. After each statement of government officials about the possible regulation or prohibition of the cryptocurrency market, we see huge price movements.

Second, the nature of cryptocurrency is more like a “repository of value” (as gold was in the past) – many investors view them as a reserve option for investing in stocks, physical assets such as gold and fiat (traditional) currencies. Translation speed also affects cryptocurrency volatility. With the fastest transfers it takes even a couple of seconds (up to a minute), making them an excellent asset for short-term trading when there is currently no good trend for other types of assets.

What everyone should keep in mind – this rate is also suitable for the life expectancy trends of cryptocurrencies. While in conventional markets trends can last for months or even years – here it happens over even days or hours.

This brings us to the next point – although we are talking about a market worth hundreds of billions of US dollars, it is still a very small amount compared to the daily trading volume compared to the traditional foreign exchange market or stocks. Thus, one investor who will make 100 million transactions in the stock market will not lead to a huge price change, but on the scale of the cryptocurrency market it is a significant and notable transaction.

Because cryptocurrencies are digital assets, they are undergoing technical and software upgrades to cryptocurrencies or expanding cooperation with the blockchain, making it more attractive to potential investors (e.g., activating SegWit has doubled the value of bitcoin).

These elements combined are the reasons that we observe such huge changes in cryptocurrency prices over hours, days, weeks, etc.

But answering the question from the first paragraph – one of the classic rules of trade – buy cheap, sell more expensive – so the presence of short but strong trends every day (instead of weaker trends that last weeks or months, like stocks) , gives a much better chance to make a decent profit when used properly.